American Tower Buys Telefonica Masts for $9.4 Billion

(Bloomberg) -- American Tower Corp. is buying telecommunication towers in Europe and Latin America from Telefonica SA for 7.7 billion euros ($9.4 billion), signaling a new competitive threat in Europe’s fast-growing tower industry.

American Tower is paying cash for about 30,700 tower sites from Telefonica unit Telxius Telecom, Telefonica said in a statement. U.S. private equity firm KKR & Co. owns 40% of Telxius and Spanish billionaire Amancio Ortega owns close to 10% through his investment vehicle.

Telefonica shares rose as much as 11% after the deal, which shows the Spanish phone company is moving faster to cut its debt pile of 37 billion euros, one of the biggest in the industry.

The deal is also a shift in strategy for American Tower, which along with rival U.S. operator Crown Castle International Corp. had largely stayed away from Europe, where phone companies are trying to raise money from their infrastructure to cut debt and pay for costly 5G rollouts.

The deleveraging need justifies the sale, and the deal should reduce net leverage on an after-lease basis by 0.3x to 2.74x.

Erhan Gurses, BI Industry Analyst

Telxius has towers in Spain, Germany, Brazil, Peru, Chile and Argentina. The sale is the biggest ever by Telefonica, which expects to book a capital gain of around 3.5 billion euros and cut its net debt by about 4.6 billion euros.

The absence of U.S. competitors has made it easier for Cellnex Telecom SA, Europe’s largest independent tower operator, to snap up assets across the region. The Telxius deal puts pressure on Cellnex partly because it gives American Tower a foothold in Germany, the one big European market where Cellnex is still absent.

Telefonica shares were up 8.1% as of 9:47 a.m. in Madrid after rising as much as 11%, their biggest intraday gain since November. Cellnex fell as much as 2.4%.

Scarce Opportunities

American Tower said it would pay for the towers in a way that preserves its investment grade credit rating, and has raised financing from Bank of America Corp.

The U.S. company has focused mostly on building towers in Africa, Latin America and India to sustain its international growth. In 2019 it bought Eaton Towers Ltd. for about $1.85 billion including debt to expand in Africa. American Tower and Telefonica already have partnerships in Brazil in optic fiber networks.

Until recently, there were few opportunities in Europe for independent tower companies like American Tower, which seek full ownership of mast infrastructure so they can maximize revenue by leasing mast space to as many network operators as possible.

Phone companies in the region have been reluctant to lose control of the assets, seeing them as strategically important. The deal on Wednesday shows how some are willing to rethink that approach in an effort to reduce costs and raise cash.

Europe’s biggest wireless carrier, Vodafone Group Plc, is working on an initial public offering of its tower unit in the first half of the year.

©2021 Bloomberg L.P.